Switzerland Begins Process of Bearer Share Abolition

Towards the end of November 2018, the Swiss government announced plans to abolish so-called “bearer shares”. This move follows pressure from the OECD Global Tax Transparency Forum in 2016. If the legislation follows through, it is expected that the abolition will take place in early 2019. From then, all existing bearer shares must be converted to registered shares or become intermediated securities.

Background to the New Measures

This follows a set of reforms over the last few years.

• Following international pressure from across the globe, the Swiss Parliament introduced a Federal Act in 2014 to Implement revisions and reforms to the Financial Action Task Force (FATF). These were the result of recommendations made in 2012
• In 2015, those acquiring non-listed bearer shares were required to report their name and address details to the company no later than one month after the date of acquisition. If the beneficial owner holds more than 25%, there is a legal duty to report such ownership. The company is required to keep a register of holders of bearer shares and beneficial owners

Yet during the Global Forum on Transparency in 2016, these measures were deemed insufficient for tax transparency despite Switzerland “largely compliant”. In early 2018, the Swiss Federal Council began a consultation process based on the new recommendations. That ended in April.

What Switzerland Now Proposes

The result was a bill that recommended abolishing bearer shares and introducing fines for holders who did not adhere to the new legislation. Further, it would become a requirement that all companies based in the country hold a Swiss bank account.
 
Law enforcement agencies in Switzerland and financial intermediaries will soon have the power to seize records for the purpose of due-diligence investigation. Unlisted companies in Switzerland will soon be unable to issue bearer shares. If any holders fail to report them to the company that issued them within 18 months, the shares will be seized. They will only be legal (as explained above) if the issuing company has listed equity securities, or in cases where the bearer shares are converted to intermediated securities. Further, courts will have the power to liquidate a company that fails to comply.

Switzerland’s Reputation Under Threat

The OECD has long since pushed for Switzerland to reform its banking secrecy laws, to increase transparency in its information exchange and of its legal bodies. In its forum in 2016, OECD hinted strongly that should Switzerland fail to adopt the requested measures, it would fail the follow up review in December 2018. Subsequently, Switzerland would suffer:

• Damage to its international reputation
• Blacklisting as “non-cooperative” by the European Union in December when it publishes its new list; other powers would likely follow suit
• Potential economic sanctions

The measures have not been welcomed across the board, most notably from Switzerland’s financial sector. Members of all political parties raised objections to the measures as did a number of legal experts. It was claimed that the measures went “way beyond the forum’s recommendations in 2016”. Further, there would be consequences for around 60,000 businesses in Switzerland.